Rupee falls past 82/USD despite dollar weakness; outflows likely

Persistent dollar-buying when the dollar index is weaker indicates there is an outflow, a trader said.

The Indian rupee declined past the key psychological mark of 82 per dollar on Tuesday on likely corporate outflows and importer demand for the greenback, traders said.

The rupee finished at 82.1250 to the dollar, having declined up to 82.15 during the session. It closed at 81.98 in on Monday.

Persistent dollar-buying when the dollar index is weaker indicates there is an outflow, a trader said.

However, dealers couldn't identify the nature of the outflow. They also cited importer demand through the session.

A move towards 82.20 could set the rupee for further weakness, they said.

So far, companies and bankers have had a bias towards rupee appreciation on improving macro economic fundamentals and carry trade appeal.

"We think most investors are yet to price in the structural changes in the current account deficit (CAD) over the last few quarters," Anubhuti Sahay, head of South Asia Economic Research (India), Standard Chartered Bank wrote.

"A sharp pick-up in services exports, increased smartphone exports and savings in the oil import bill… have likely altered India's CAD permanently."

This week the rupee would take cues from the India and U.S. inflation data, both, due Wednesday, with the former considered more crucial by traders.

The U.S. data will be instrumental in the Federal Reserve's decision on whether to raise rates at its May meeting, which is leaning towards a 25 basis point (bps) hike following the U.S. jobs report, futures showed.

U.S. bond yields stayed elevated, with the 2-year hovering just under 4%.

USD/INR premiums dipped more, with the 1-year implied yield now at 2.37%. After the Reserve Bank of India's unexpected pause last Thursday, the 1-year is down about 20 bps.